Western economy upbeat

By Phillip E. Vincent Vice President and Regional Fconomist Manager First Interstate Bank

E 13 western states performed even better than expected in 1984. Housing construction was up significantly at an estimated 16.890 increase in housing unit permits over 1983, compared with an estimated 3.990 increase for the nation as a whole. In housing, employment, and personal income growth, the West continues to outperform the nation.

It is expected that this rapid growth in housing construction will fall off somewhat in 1985 as the surge of pentup demand coming out of the depressed 1980-82 period has been satisfied. Although interest rates are now forecast to fall slightly on into the middle of 1985 before turning upwards by the end of the year, housing permits are forecast to decline by 10.590 in the 13 western states.

The fxed, 3Gyear mortgage interest rate is now forecast to decline from a high of 14.50/o in the third quarter of 1984 to a low of around 13.090 in the second quarter of 1985 before returning to an upward trend, hitting 13.590 during the fourth quarter of 1985. Overall, mortgage interest rates may average slightly lower for all of 1985 than they did in 1984. Of course, the sigrrificant increase in consumer acceptance of adjustable rate mortgages has made the fixedrate mortgage a somewhat less useful indicator than it has been in the past.

The western states experiencing the greatest percentage surge in housing unit permits in 1984 included California (30.190), Oregon Q7.6s/o), lJtah Q2.8s/o'), Arizona (21.50/o), and Washington (N.9Vo). For 1985, each western state is expected to show some decline with the smallest drops in Hawaii, Utah, Alaska, New Mexico, and Oregon.

The West continues to have an advantage over most of the nation in that it contains centers of the growth

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industries such as high technology manufacturing and services and a low proportion of the manufacturing industries that have caused so much painful adjustment in the East and Midwest. Of course, several important sectors in particular western states continue to experience difficulty including energy, metals, mining, agriculture, and lumber. The more specialized a region is in the latter sectors, the less expansion it has experienced since the economic recovery that began in early 1983. Although the lumber - dependent areas of such states as Oregon, Washington, Idaho, and Montana have been aided by the major housing recovery of the past two years, employment in this sector is still well below its previous peak.

The outlook for the nation in 1985 is quite positive, although the rapid growth experienced in 1983 and 1984 during recovery from a major recession cannot continue. It is expected that real gross national product (GNP) for the nation will increase 3.690 in 1985 after the 6.990 increase in 1984. Furthermore, the chances of a recession occurring in 1986 seern low at this time assuming that the Federal Reserve remains steady towards the low end of its announced targets for monetary gxowth.